Why Trump and Xi’s 90-Day Trade Truce Is a Step in the Right Direction

The audible, global sigh of relief in the wake of last weekend’s decision by Presidents Donald Trump and Xi Jinping to negotiate trade war issues over the next 90 days was well justified. The deal is a big step forward for all concerned.

Let’s quickly dispense with the scoffing critique voiced by several professional doubters that little can be accomplished in 90 days and that the agreement therefore is nothing more than an arrangement to kick the can down the road. While it is true that a comprehensive deal is very unlikely to be completed in the next 90 days, it should be obvious that presidents who can agree to talk for the next 90 days can also agree to talk longer if the first 90 days seem to augur something promising. If they don’t, then it probably makes sense to shut the talks down — and at least it will then be clear that we didn’t move rashly ahead to impose massive tariffs without giving negotiations an honest try and will garner more domestic and international support for some form of further trade actions if talks fail.

Indeed, this was the only sensible alternative. It was clear that the Chinese were not immediately going to yield to American requests, and it was equally clear that imposing American sanctions without any further effort at negotiation was likely to be counterproductive.

A second important step forward was the clear designation by President Trump of U.S. Trade Representative Robert Lighthizer as the key leader of the U.S. negotiating team. Because he is known to be a knowledgeable and tough negotiator, the Chinese have tried over the past two years to drive discussions through Treasury Secretary Steve Mnuchin and National Economic Council Advisor Larry Kudlow. These two were perceived to be softer, less knowledgeable, more pro-globalization, and more concerned about financial markets than Lighthizer. By specifically pointing to the trade representative as the guy in charge (as his title indicates he should be), Trump made it clear that the United States is serious. Lighthizer knows the World Trade Organization (WTO) and the global trade rules upside down and backward. He is a leading strategist and a seasoned negotiator who knows all the key global players as well as where all the bodies are buried. He won’t be deceived, and he will demand concrete, measurable results.

One of the most interesting statements to come out of the Buenos Aires dinner was President Xi’s comment that Qualcomm’s offer to acquire NXP Semiconductors might now be approved if it were to be proposed again. Qualcomm scrapped the deal in July after the Chinese antitrust regulator didn’t make a ruling by the deadline for consummating the deal. In other words, the Chinese government’s objection had been political rather than legal all along.

Qualcomm quickly stated that there would be no new proposal. But the important point here is that the main U.S. complaint about China’s trade/globalization policies is precisely that Chinese trade and industrial policies are political and lead to government intervention in markets that contradicts China’s stated commitments to the spirit and rules of the WTO and to market-oriented globalization.

This issue is not new to veterans (like Lighthizer) of the U.S.-Japan and U.S.-South Korea trade negotiations of the 1980s and 1990s. The heart of the problems in these cases was the commitment of these countries to equaling and surpassing the capabilities of the United States in targeted industries such as chemicals, steel, autos, semiconductors, aircraft, computers, machine tools, biotech, ship building, and computers. These governments intervened in markets to provide investment guarantees, trade and R&D subsidies, dedicated government procurement, and trade protection, including “buy national” policies.

China has been a careful student of the Japanese and South Korean strategies as well as of those of Taiwan and Singapore. It has adopted the key elements of each and then added its own. Particularly significant has been China’s approach to foreign investment. While Japan, South Korea, and Taiwan largely eschewed foreign investment, China has welcomed and promoted it. But, of course, it has done so on its own terms. So foreign investors have often been required to enter joint ventures and to transfer technology as a condition of being allowed to invest. They were required to export a certain proportion of their production and subject to extensive theft of their intellectual property.

Even in the cases of Japan and South Korea, it was always difficult for foreign companies to have their complaints heard. The biggest problem was that government bureaucrats had extensive informal power. They could wink or nod at corporate leaders and the complaints would be buried. Or they could wink and nod and distributors would suddenly no longer buy foreign products for distribution. They could also impose new testing standards or ignore requests for testing. There were a hundred ways in which the bureaucracy could quietly carve up a company, and the company would have no effective recourse. In China, this situation is even more difficult. There is what is known as the “death of a thousand cuts.” A company may find itself wounded and not have any idea of the source of the cut.

Lighthizer’s task will be to find a way to compel China’s policymakers and bureaucrats to minimize intervention and to conform to the spirit as well as the letter of the WTO’s rules and of the broader free-trade doctrine to which they aver they are dedicated.

It will be no easy task. Lighthizer deserves the support and good wishes or all who hope for a friendly resolution of U.S.-China differences and for the continued success of globalization.